What's better: Pay off credit card debt or collections?

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rossmo
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What's better: Pay off credit card debt or collections?

Postby rossmo » Fri Aug 10, 2012 7:28 am

Hello all,

What should I do first; Pay off half my credit card debt, or pay off a collection on my credit report? Whats holding my credit back more, the maxed out credit card or the collection?

Which is smarter for me to do first and which will help raise my credit more in the coming months?

I appreciate any help! Thanks!

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djrez4
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Postby djrez4 » Fri Aug 10, 2012 1:55 pm

If you can keep up with the minimum payments on the card, pay off the collection ASAP. Once that's gone, focus on paying down the balance on the card.
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rossmo
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Postby rossmo » Fri Aug 10, 2012 11:07 pm

I hear you, but whats the reasoning?

Approximately how many points will my credit increase by paying the collection off vs. bringing my current credit card utilization down below 30%?

Also, whats the best approach to handle the collections payment and possible scenarios for removing this from my credit report?
Credit Union Visa: $5000 (4/11)
Discover IT $1750 (10/12)
Chase Freedom $1500 (3/13)
BofA Credit Card: $18.7k (1/02) (Authorized User)
Secured CapOne Visa: $300 (5/12)
Banana Republic Store: $1200 (5/11)
Express Next A-List: $1340 (6/11)

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EQ 762
EX 731
TU 747

432521
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Postby 432521 » Sat Aug 11, 2012 12:51 am

How big is your collection? Even without that though I would agree with djrez4 and say you pay off your collection. If you pay it off now or soon the sooner it falls of your history. Lets say you want to get some type of loan 5-8 years down the line you will wish you had that collection off your report because it WILL HURT you bad. As long as you make the minmum payment on your credit union visa pay your collection off first and keep making minimum payments on your CC.

I am not sure if you can get a collection removed from your credit report, from my understanding the only way for it to go away is after you pay it off it falls off 5-7 years later.
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Postby Crashem » Sat Aug 11, 2012 2:55 am

Some bad info here. Paying off collection does not make it fall off your credit report sooner. It will fall off at the same time whether or not you pay it off. Derogatory information will generally fall off in 7 to 7 1/2 years from the time of first deliquency. It has nothing to do with whether or not it is paid off.

In fact, paying off collection may do nothing for your credit score. It just depends if the way the collection account is listed on your credit report. It the balance is included in your utilization calculations, then it doesn't matter which you pay off (colleciton or current cards). If it is not figured into utilization calculations, then paying off collection will do nothing for credit score. How it is listed depends on what stage it is in collection and whether or not collection company is playing games whether or not it is included in utilization calculations. Basically, credit score wise, better to pay your current debt over collections as it either doesn't make a difference which is paid in one scenario and makes no difference to score in other scenario where paying the current debt would have made a difference.

Assuming it is truly a collection account listed correctly, I would be paying down current debt over collection amounts. The fact is the longer the collection account goes uncollected, the more leverage you have to settle for less or pay for deletion. There is one big caveat. Some lenders and lending products basically require no unpaid collections. Unpaid collections will result in automatic denial. A great example of this is FHA mortgage loans.
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432521
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Postby 432521 » Sat Aug 11, 2012 3:55 am

My bad about saying 5 years but I did say 7 lol.

My point is though is that if he decides to buy a house, car, or something huge in the next 7 years and needs a loan what is he gonna do then? Would it not be harder for him to get a loan because like u said some companies won't even consider u if you have a collection on your history. Sure he can wait until after he pays off his credit card debt, but how long would that take. I am sorry but if you can not pay off a debt as little as 2k and you have collections that you need to pay off I think spending habits need to be checked. If you think u can pay off both within a month or two then I would say to got for the credit card debt first, but if your funds are limited and you do not think you cannot pay off either within the 1-2 months I say go for paying off the collection first but at the same time may being putting at least a 100 a month hopefully u can do a little more to your visa bill each month as well
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Postby craigm1 » Sat Aug 11, 2012 9:42 am

I just had a $120 medical bill in collection for 4 years was trying to do a refi on my house paid it off and my experian jumped from 692 to 775 collections obviously crush your score

the collection was deleted from my report


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Crashem
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Postby Crashem » Sat Aug 11, 2012 10:42 am

craigm1 wrote:I just had a $120 medical bill in collection for 4 years was trying to do a refi on my house paid it off and my experian jumped from 692 to 775 collections obviously crush your score

the collection was deleted from my report


craigm


This is an example of what I am saying. Your score got increased because they deleted the collection account. If they hadn't, it would not have done anything to your score. As such, I recommend always going for PFD (pay for deletion) with collection accounts. The interesting question is whether or not you waiting so long encouraged them to agree to delete.
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Crashem
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Postby Crashem » Sat Aug 11, 2012 10:45 am

432521 wrote:My bad about saying 5 years but I did say 7 lol.

My point is though is that if he decides to buy a house, car, or something huge in the next 7 years and needs a loan what is he gonna do then? Would it not be harder for him to get a loan because like u said some companies won't even consider u if you have a collection on your history. Sure he can wait until after he pays off his credit card debt, but how long would that take. I am sorry but if you can not pay off a debt as little as 2k and you have collections that you need to pay off I think spending habits need to be checked. If you think u can pay off both within a month or two then I would say to got for the credit card debt first, but if your funds are limited and you do not think you cannot pay off either within the 1-2 months I say go for paying off the collection first but at the same time may being putting at least a 100 a month hopefully u can do a little more to your visa bill each month as well


The opposite is better for OP if collection account is older. Better to pay and make happy your current creditors. I agree with you that OP needs to look at his spending and budget if he is having so many problems. The fact is that the longer you wait to deal with collection accounts, the better your bargining position is with them to get PFD or settling for lesser amount etc.
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namvet
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Postby namvet » Sun Aug 12, 2012 12:55 pm

Crashem wrote:Some bad info here. Paying off collection does not make it fall off your credit report sooner. It will fall off at the same time whether or not you pay it off. Derogatory information will generally fall off in 7 to 7 1/2 years from the time of first deliquency. It has nothing to do with whether or not it is paid off.

In fact, paying off collection may do nothing for your credit score. It just depends if the way the collection account is listed on your credit report. It the balance is included in your utilization calculations, then it doesn't matter which you pay off (colleciton or current cards). If it is not figured into utilization calculations, then paying off collection will do nothing for credit score. How it is listed depends on what stage it is in collection and whether or not collection company is playing games whether or not it is included in utilization calculations. Basically, credit score wise, better to pay your current debt over collections as it either doesn't make a difference which is paid in one scenario and makes no difference to score in other scenario where paying the current debt would have made a difference.

Assuming it is truly a collection account listed correctly, I would be paying down current debt over collection amounts. The fact is the longer the collection account goes uncollected, the more leverage you have to settle for less or pay for deletion. There is one big caveat. Some lenders and lending products basically require no unpaid collections. Unpaid collections will result in automatic denial. A great example of this is FHA mortgage loans.


+1 I agree



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